Pension Schemes Bill

Debate between Baroness Stedman-Scott and Lord Fuller

Report stage
Monday 16th March 2026 Lords Chamber

[Baroness Stedman-Scott (Con)]

My Lords, I move Amendment 9 standing in the names of my noble friend Lord Younger of Leckie and myself. During the passage of this Bill, we on these Benches have had a great many discussions not only in this Chamber but with industry experts, scheme managers, employers and others who will be directly affected by the provisions before us. Those conversations have been extremely valuable and have revealed something that many of us have found increasingly concerning. We have been made aware that, in a number of cases across the Local Government Pension Scheme, employers are being asked to contribute very substantial sums into pension funds; these levels of contribution appear to go well beyond what would be required for those funds to be fully funded, even on a very prudent basis.

Of course, prudence is essential in pension funding, and no one in this House would dispute that. Pension promises stretch decades into the future, and it is right that those responsible for safeguarding them take a cautious and responsible approach when assessing liabilities and setting contribution rates. What we are seeing in some cases, however, appears to move beyond prudence into excessive prudence. When contribution requirements are set significantly above what would be necessary even under extremely cautious valuation assumptions, the consequences are that employers, local authorities, academies, housing associations and others are required to divert even greater sums of money into pension funds.

The money does not come from nowhere; it comes from taxpayers and from public budgets, which might otherwise be used to fund and support local services, improve communities, invest in schools, support vulnerable people and deliver the many things we all want councils and public bodies to be able to do. If those employers are being asked to contribute significantly more than is necessary to secure the pensions of their members, we have to ask whether the balance between prudence and proportionality has shifted too far. That is precisely the issue this amendment seeks to address.

Amendment 9 would introduce an important requirement for transparency, requiring Local Government Pension Scheme valuations to be benchmarked against two widely recognised measures: insurer pricing—specifically, bulk annuity pricing—and evaluation based on gilt discount rates. Those benchmarks would then be published alongside the scheme’s official funding valuation.

Crucially, where the scheme’s official valuation is materially more prudent than those benchmarks, the administrating authority would be required to publish a clear statement explaining three things: first, what risk the scheme was seeking to guard against; secondly, why those risks justified the high level of prudence being applied; and, thirdly, what the impact of that additional prudence would be on employer contribution rates. In other words, the amendment would introduce transparency around the actuarial assumptions being used; it would allow employers, scheme members and the wider public to see how prudence affects contribution cost; and it would give those who are paying into the scheme the ability to understand—and where appropriate, question—the basis on which those cost are being set.

This intention should not be controversial. Indeed, one might reasonably argue that it should be a basic feature of the system. Where decisions are being taken which require significant contributions from public bodies, there should be transparency about how those decisions are reached, there should be honesty about the assumptions being applied and those affected should have the information necessary to exercise agency and scrutiny.

What this amendment seeks to achieve is not to undermine prudence—quite the opposite. Prudence remains vital in pension funding. But prudence must be accompanied by accountability, and when additional prudence is applied, particularly where it carries significant cost implications, it should be clearly explained and justified. The fact that our amendment would require those benchmarks, the funding strategy statement and employer contribution rates to be published together, is another key point. It would allow stakeholders to see the full chain from market comparison to actuarial judgment to the costs ultimately borne by employers.

This amendment therefore strikes a sensible balance. It would preserve the independence of actuaries and the integrity of the valuation process, while ensuring that the consequences of those decisions are visible and understood. For employers, it would provide clarity; for scheme members, it would provide reassurance; and for taxpayers, it would ensure that the significant sums being directed into pension funds are subject to appropriate transparency. For those reasons, this amendment represents a constructive and proportionate improvement to the Bill. It asks only that, where high levels of prudence are applied, they are accompanied by explanation and openness. That seems to me an entirely reasonable expectation, and I will test the opinion of the House when it is called.

[Lord Fuller (Con)]

My Lords, I support Amendment 9 in the names of my noble friends on the Front Bench and place on record that there are some very good behaviours among the Local Government Pension Scheme administering authorities that already follow the path laid out in the amendment, which would then be placed on a statutory basis.

I would not want people to think that none of that best practice happens, or that the numbers are just plucked out of the air—that is not the way it is at all. The purpose is that all schemes reach expectations and assess their liabilities in aggregate, not just for each of the councils—most people without this House would think the LGPS is a scheme for councils—but all the other admitted bodies as well. As I said in the previous group, when I first joined the Norfolk scheme about 20 years ago, there were about 70 admitted bodies; there are now 500, so it is extraordinarily complicated. Nationally, on a whole-of-LGPS basis, there are 6,160 scheduled bodies, 3,639 admitted bodies, 478 designated bodies—I do not know what they are, but I think they might be with the Environment Agency—and 15,049 employers with active members.

The key thing, in support of my noble friend Lady Stedman-Scott, is that when we look at all these contribution rates, it is not just taking the scheme in aggregate; we have to drill down to all the particular liabilities for each employer in the scheme. I am now drifting into the complication we often hear so much about, which is used to obfuscate the scheme. What I really like about this amendment is that it stops people who know about the Local Government Pension Scheme from hiding behind that complexity and obfuscation. It will require members to publish in plain language how the numbers are arrived at and what this amendment seeks to achieve.

Again, to repeat some of my history, when I first joined the Norfolk scheme, which is a good example, it was 79% funded. We shovelled in cash like it was going out of fashion. Now, 20 years later, it is 130% funded. In the last three years it has gone up 25%. These big swings militate against stability and sustainability. Over the years there has been a pessimism bias, which has meant that council tax, councils and admitted bodies have put much more money into the scheme. Partly, there was groupthink from the regulators, which forced us down this path.

However, I want to provide reassurance. When you look at the assumptions that I have been involved in, over five triennial revaluations now, there is a fan of opportunities and scenarios that the actuaries run on the membership of the scheme, sponsoring employers, even the life expectancy of members calibrated by postcode. There are about a thousand different scenarios in the scheme that I have seen. Of course, one of those scenarios is a wipeout. We should not confuse a scenario with a likelihood. With the benefit of hindsight, I think what has happened is that the extreme cases have been taken and split down the middle, whereas if there was more clustering around the middle then we would not have had to put in so much. That is why the amendment looks in a much more focused way at the funding strategy statement. That way, we can take the true costs into account.

On seeing the noble Lord, Lord Davies, again, who is an actuary, I am reminded of an old actuaries’ joke I told in Grand Committee. I am going to repeat it, because it was a small audience then: “We’re all living longer and it’s getting worse”. Some of the assumptions have possibly overcooked life expectancy and undercooked the effects of Covid, and so forth. There is a balance to be struck between overoptimism on one hand and excessive prudence on the other. It is a complicated scheme, but the amendment works out a method by which we can communicate that texture in language that the man in the street can understand, so that taxpayers can be reassured that they are not being overtaxed and members can be reassured that, over the life of the tail liabilities of the whole scheme, they will be paid in full at the right moment. As I said on the previous group, the LGPS is the closest thing we have to a sovereign wealth fund and it is important that we do not take an excessive pessimism bias, as the story of the last 20 years has shown.

Pension Schemes Bill

Debate between Baroness Stedman-Scott and Lord Fuller

Committee stage
Tuesday 3rd February 2026 Grand Committee

[Lord Fuller (Con)]

My Lords, I will not repeat the long list of government missteps on a global, international stage from those politicians who have interfered with people’s retirements. Safe to say, it represents moral hazard.

There is a mismatch between the long-term investment needs of people who are saving for retirement half a generation ahead—in particular, the youngest members of our workforce—and the short-term political wants of those who might direct. Politics is transient. MPs come and go, but the hangover from bad decisions lasts a long time. The 1997 changes to dividend taxes have cast a long shadow that has deprived millions of a secure retirement. We should have learned that lesson but, no, we have not. Mandation risks repeating that mistake all over again and benighting a new generation of youngsters who are 30 or 40 years away from retirement. There is already generational unfairness in the system. Mandation will perpetuate it again. It should have no place in the Bill, yet here we are discussing it.

I align myself fully with the proposers of these amendments and hope that, even at this late stage, between Committee and Report, the Government will look at this matter once more. Mandation should not be part of the Bill because of that simple moral hazard. MPs and the Treasury love to tell people what to do, but they will not be around to pick up the pieces when, or if, it all goes wrong.

[Baroness Stedman-Scott (Con)]

My Lords, I shall speak briefly to Amendment 167, which was tabled and spoken to eloquently by the noble Baroness, Lady Kramer, and supported by many noble Lords. This amendment touches on a set of concerns that we raised at Second Reading and to which we will return in considerably more detail in our debate on the next group.

For the sake of brevity, at this stage, I will confine myself to the central point of principle. The issue here is not simply asset allocation but where risk is placed and who should take it when investment decisions are shaped by government direction, rather than trusty judgment. The mandation power introduced by the Bill is targeted narrowly at automatic enrolment default funds—the schemes that are relied on by those who are least likely to have made an active choice and are least able to respond if outcomes are adversely affected. That targeting matters. Mandation does not apply evenly across the pensions landscape. It does not touch defined benefit schemes, self-selected funds, SIPPs or bespoke arrangements but falls with notable precision on default savers—those who depend most heavily on the neutrality and integrity of the system to act on their behalf.

Amendment 167 raises a legitimate question about protection and accountability in that context. If default funds are required to follow mandated investment decisions and if those decisions underperform a simple, low-cost benchmark, should the consequences fall entirely on members who neither chose the strategy nor, in practice, have the capacity to respond to it? Of course, it may be said that members are free to move to another fund, but that response lacks behavioural realism. Automatic enrolment defaults exist precisely because many savers do not actively choose, do not regularly review and do not feel equipped to intervene in complex investment decisions. How can we put them in that position?

For a significant proportion of members, remaining in the default is not an expression of preference but a reflection of constraint, limited time, limited confidence and limited financial literacy. Behavioural realism tells us that these savers will not simply move in response to policy changes, however well signposted. To place the full downside risk of mandated investment decisions on that group is therefore not neutral; it is a deliberate allocation of risk to those least able to manage it. The noble Baroness’s amendment is therefore not an attempt to eliminate risk but to highlight the asymmetry that mandation introduces and the absence of any corresponding safeguard for those most exposed to its effects.

These issues around mandation, choice, fiduciary duty and the position of default savers run through the architecture of the Bill. We will return to them in much greater depth in the following group. For now, I simply underline that the concerns raised by Amendment 167 and all those who have spoken are not isolated. I look forward to the Minister’s response and hope that the Government will take note of the concern laid out to them today and do the right thing.